CAFE Kills, and Then Some:
Six Reasons to Be Skeptical of Fuel Economy Standards

DATE: June 19, 2007

BACKGROUND: In 1975, Congress enacted Corporate Average Fuel Economy (CAFE) regulations to reduce gasoline consumption.
Current CAFE standards require an average of 27.2 miles per gallon (mpg) for cars and 21.6 mpg for light trucks. As part of its debate over the Energy Bill (S.1419), the U.S. Senate is now considering raising CAFE standards to require all passenger cars and light trucks to average 52 mpg. Senators Carl Levin (D-MI), Christopher Bond (R-MO) and Mark Pryor (D-AR) have proposed an alternative increase, which would require a 36 mpg standard for cars by 2022 and 30 mpg for light trucks by 2025.

Auto and truck manufacturers and the United Auto Workers trade union support the Levin-Bond amendment, which would raise standards 31 percent for passenger cars and by 35 percent for light trucks. Senate Majority Leader Harry Reid (D-NV), Senator John Kerry (D-MA) and others in the Democratic leadership, along with major environmental organizations, support the 52-mpg standard.

An expected reduction in gasoline usage is the most common reason cited for raising CAFE standards. It is not clear, however, that CAFE standards are particularly helpful in reducing gasoline use. Meanwhile, there are significant disadvantages to the standards, especially the harsh -- and very likely unattainable -- 52 mpg level for both cars and light trucks as proposed in the Energy Bill, which the auto manufacturers and the UAW say could possibly be a death knell for the domestic auto industry.

TEN SECOND RESPONSE: CAFE standards already result in the deaths of approximately 2,000 Americans every year, since smaller cars are less crashworthy. By failing to acknowledge this in their policymaking, Congress has cost thousands of Americans their lives. Now Congress is poised to compound the dangers by raising CAFE standards still further -- so much so, it may kill the domestic auto industry itself.

THIRTY SECOND RESPONSE: CAFE standards have little impact on greenhouse gas emissions, and the environmental benefits of increasing CAFE standards are frequently overstated. Their impact on human health is more certain: CAFE standards have resulted in tens of thousands of deaths since their adoption. Furthermore, raising CAFE standards at this time -- particularly to the draconian level of 52 mpg for both cars and light trucks -- would significantly harm auto manufacturing jobs in the U.S., raise vehicle prices, and reduce vehicle choices for families1 and for those who use vehicles for towing and moving goods.

DISCUSSION: Opponents of increasing CAFE standards raise the following concerns:

1) Increasing mpg reduces the per-mile cost of operating vehicles, which increases the number of miles driven, thus reducing or eliminating any CAFE benefit.
Jerry Taylor and Peter Van Doren of the Cato Institute explain why this is the case:

Energy efficient appliances reduce the costs of operation. This might not be a big deal when it comes to, say, the television set (we won't watch more TV just because it costs a little less to turn on the set). But for appliances like air conditioners that make all the difference during peak demand periods, energy efficiency reduces the marginal cost of energy services and thus increases -- not decreases -- energy consumption. This is a well-known phenomenon called the 'rebound effect.'
The same goes for automobile fuel efficiency. Environmentalists argue that increasing the miles per gallon of the cars we drive would save more energy than increased drilling could produce. But the data show that fuel consumption goes up whenever automobile fuel efficiency goes up. Nearly all the gains in fuel efficiency disappear once we account for the demonstrable increases in driving that such investments produce.2

[USA Today columnist John] Merline noted people drive their vehicles more when increased fuel economy makes the price per mile cheaper. "The number of miles driven by passenger cars and light trucks climbed 104 percent between 1975 and 2000, according to the Department of Transportation," noted Merline.

A 2001 study conducted by the National Research Council (NRC) reached the same conclusion. According to the NRC, CAFE "reduces the fuel cost per mile of driving, thereby encouraging faster growth in vehicle travel than would otherwise be the case."

"NHTSA neglects the adverse effects from the increased driving induced by the proposal," agreed Randall Lutter and Troy Kravitz in a February 2003 study released by the AEI-Brookings Joint Center for Regulatory Studies. "By lowering the costs of driving, NHTSA's proposal increases vehicle miles traveled, thereby boosting traffic accidents and congestion. The increase in the costs of accidents and congestion fully offsets and probably outweighs the social benefits resulting from greater fuel economy."3

Writing in the Wall Street Journal in 2001, Kimberly A. Strassel observed, "[s]ince 1970, the United States has made cars almost 50% more efficient; in that period of time, the average number of miles a person drives has doubled."4

2) CAFE standards are dangerous. In 2002, the National Academy of Sciences released a report, "Effectiveness and Impact of CAFE Standards 2002," concluding that since CAFE standards were imposed in the U.S. in 1975, an additional 2,000 deaths per year can be attributed to the downsizing of cars required to meet CAFE standards.

In 2001, Charli E. Coon, J.D. of the Heritage Foundation wrote:

The evidence is overwhelming that CAFE standards result in more highway deaths. A 1999 USA TODAY analysis of crash data and estimates from the National Highway Traffic Safety Administration and the Insurance Institute for Highway Safety found that, in the years since CAFE standards were mandated under the Energy Policy and Conservation Act of 1975, about 46,000 people have died in crashes that they would have survived if they had been traveling in bigger, heavier cars. This translates into 7,700 deaths for every mile per gallon gained by the standards.5

3) CAFE increases are less likely to reduce gas consumption than are gas tax increases:

In a 2002 essay published in the Los Angeles Times, the Cato Institute's William A. Niskanen and Peter Van Doren noted, "since the CAFE standards were introduced, the average fuel economy has increased by 114% for new cars and by 56% for new light trucks, but the U.S. consumption of imported oil has increased from 35% to 52%." Niskanen and Van Doren recommended that if reducing gas consumption is the goal, an increased gasoline tax is more likely to get the job done: "In contrast to a tax on gasoline, CAFE standards are an imperfect and inefficient method of signaling drivers about the true costs of the gasoline that they consume."6

The Congressional Budget Office took a similar view:

This issue brief focuses on the economic costs of CAFE standards and compares them with the costs of a gasoline tax that would reduce gasoline consumption by the same amount. The Congressional Budget Office (CBO) estimates that a 10 percent reduction in gasoline consumption could be achieved at a lower cost by an increase in the gasoline tax than by an increase in CAFE standards. Furthermore, an increase in the gasoline tax would reduce driving, leading to less traffic congestion and fewer accidents. This analysis stops short of estimating the value of less congestion and fewer accidents and, therefore, does not draw any conclusions about whether an increase in the gasoline tax would be warranted. However, CBO does find that, given current estimates of the value of decreasing dependence on oil and reducing carbon emissions, increasing CAFE standards would not pass a benefit-cost test.7

As National Center for Public Policy Research Senior Fellow Eric Peters writes:

The legislation differs from previous fuel economy standards in that it would apply to both passenger cars and "light trucks" -- a category of vehicle that includes pick-ups, SUVs and minivans -- and which has up to now been held to a separate (and less stringent) fuel economy standard of 21.5-mpg vs. 27.5-mpg for passenger cars.

As a result, [legislation to increase CAFE standards] would disproportionately hurt American car companies, which have their profit centers in large pick-ups and SUVs -- while giving a competitive leg-up to imports, which make most of their money selling smaller, inherently more economical passenger cars.

It's much easier to tweak the design of a compact or mid-sized front-wheel-drive passenger car with a four or six-cylinder engine that already gets 32 mpg to the 35 mpg mark than it is to get a full-size, V-8 powered truck or SUV from 20-something mpg to 35 mpg. Thus, the impact of the [legislation to increase CAFE standards] will hurt American car companies most where they are especially vulnerable -- at a time when they can least afford another legislative knee-capping.
GM, Ford and Chrysler have all posted alarming losses recently, even as the quality and appeal of their vehicles has been on the upswing. Hitting them with a 35-mpg fuel economy edict would have the same effect as sucker punching someone already laid low by the flu.8

Furthermore, more stringent CAFE standards will make new cars more expensive, which will depress sales generally.

5) Some individuals, families and businesses need the large vehicles a CAFE standard increase will tend to drive out of the market for towing or storage capacity or simply to transport their families. Laws requiring parents to transport children -- in some states, children up to eight years of age -- in approved child safety seats effectively reduces available seating in the back seat of most small (and many mid-sized) sedans to two persons. For safety reasons, transporting a third child in the front seat is inappropriate in most vehicles, and is illegal in some areas, making larger vehicles all but mandatory for many families with children.

6) The argument that increasing CAFE standards will reduce global warming is grossly overstated. Even if greenhouse gas emissions due to human activities are significantly, and harmfully, raising global temperatures, which remains a subject of debate, increasing CAFE standards would have scant impact. As Charli E. Coon, J.D., of the Heritage Foundation wrote in 2001:

Nor will increasing CAFE standards halt the alleged problem of "global warming." Cars and light trucks subject to fuel economy standards make up only 1.5 percent of all global man-made greenhouse gas emissions. According to data published in 1991 by the Office of Technology Assessment, a 40 percent increase in fuel economy standards would reduce greenhouse emissions by only about 0.5 percent, even under the most optimistic assumptions.

WHAT OTHERS ARE SAYING ABOUT CAFE STANDARDS:

U.S. Senator Carl Levin (D-MI):

Unfortunately, many people in Washington have a misguided focus on increasing arbitrary fuel economy standards, known as CAFE. Expanding CAFE is a plan for plenty of economic pain but almost no environmental gain. By 2012, the world is projected to produce nearly 32 billion metric tons per year of carbon dioxide. The U.S. contribution to that will be about 6 1/2 billion metric tons. If CAFE standards were increased by 4% per year, as some are proposing, the U.S. contribution would be reduced by only about 5 million metric tons. That's a measly one-tenth of one percent of the U.S. contribution.
Because of the way CAFE is structured, it is highly discriminatory against U.S. companies and workers. It pushes consumers from U.S. vehicles to foreign-made vehicles that have the same fuel efficiency. With our automakers already facing trade barriers and an uneven international playing field, imposing on them the discriminatory features of the CAFE structure costs America jobs without improving the environment.9

UAW President Ron Gettelfinger:

Consumers want more fuel-efficient cars and we need to reduce our dependence on foreign oil. But workers are part of the environment too, and drastic proposals which destabilize our industry won't do anyone much good in the long run.10

Sam Kazman, General Counsel, Competitive Enterprise Institute:

The end result will be enormous hardships, borne ultimately by consumers. We will end up with vehicles that cost more and perform less.
Safety will suffer as well. One of the less publicized findings of the National Research Council's 2002 CAFE study is that the program, through its downsizing effect on vehicles, already contributes to about 2,000 traffic deaths per year. That toll will only get worse if CAFE is made more stringent.
Advocates of higher CAFE duck this issue by claiming that new technologies eliminate the need for a trade-off between fuel economy and safety. This claim is false. If you take the most high-tech car imaginable and add a hundred pounds to it, two things will happen. Its fuel economy will drop, and its crashworthiness will increase. In short, there will still be a trade-off.11

Ben Lieberman, Senior Policy Analyst, The Heritage Foundation

Beyond safety concerns, there is also the issue of consumer choice. A variety of smaller but more fuel-efficient models are already on the market for those who want them. In other words, there is no market failure justifying federal intervention. The car-buying public does not want or need Washington stepping in and forcing these smaller vehicles on everyone."12

Diana Furchtgott-Roth, Senior Fellow at the Hudson Institute

After dead motorists, the biggest losers from higher standards would be Americans who prefer large vehicles to carry families, equipment, and pets on daily trips or long vacations.
Other major losers would be the domestic car manufacturers, GM, Ford, and Chrysler, who have invested in plants that make large sedans and light trucks, Americans' preference. The industry is already restructuring to try to reduce labor costs; higher CAFE standards would be its nail in the coffin...
If energy security is the rationale for CAFE standards, America needs to increase domestic coal and natural gas production, find out whether potential supplies of oil exist in Alaska, invest in more refinery capacity, and build nuclear power plants. We've done none of these."13

The Center for Individual Freedom:

As always, this government folly will result in even higher gas and automobile prices, as well as decreased auto safety, for consumers...
The more fundamental problem with the regulations, however, is that they simply don't work. The CAFE system was imposed in 1975 as a response to the oil embargo, but America today imports an even greater portion of foreign oil than it did then...
On the other hand, these mandates will put American automakers at even greater competitive disadvantage, because Japanese and other foreign competitors will be better able to adapt to the new standards. As it is, the American Big Three are hemorrhaging losses, shuttering manufacturing plants and laying off thousands of American employees.
What a deal -- more losses by the Big Three, more layoffs and higher gas and car prices...
Unfortunately, ailing automakers and gas suppliers simply present too soft a boogeyman, and feel-good environmental platitudes too easy a justification. With the White House apparently surrendering, it is now up to American consumers and voters to resist this counterproductive policy before we suffer additional damage."14

5 Charli E. Coon, J.D., “Why the Government's CAFE Standards for Fuel Efficiency Should Be Repealed, not Increased,” Backgrounder #1458, July 11, 2001, available online at http://www.heritage.org/Research/EnergyandEnvironment/BG1458.cfm as of June 19, 2007.